How Much Does Employee Engagement Boost Profitability?

As the global economy picks up speed, many companies are coming up against an unexpected problem: their growth strategies are making them less – rather than more – profitable. Companies facing this paradox are typically so focused on controlling costs that their management practices damage employee satisfaction and the quality of employees’ working lives. As a result, stress levels rise, employee engagement falls and the productivity of the people who are meant to deliver increased profitability nosedives. By contrast, management practices that enhance employee engagement and the quality of working life have been shown to boost company performance.

In Finland alone, a higher quality of working life would raise company profits by 3 billion euros, according to calculations by Professor Marko Kesti, Adjunct Professor, HRM-Performance at the University of Lapland. Using these calculations makes you wonder what would happen to profitability in some of the world’s largest economies!

Employee engagement surveys matter

Before you can start making improvements that will make a real difference to employee performance and engagement, you need to conduct an employee satisfaction survey to measure the existing quality of their working lives. That means measuring the right things. Unfortunately, most employee satisfaction surveys fail to do this. They usually provide average employee satisfaction or engagement scores, instead of truly understanding how the various factors affect employee satisfaction. This makes their data useless.

A far more reliable method of employee engagement surveys has been developed by Professor Kesti in conjunction with others. Based on cutting edge research, the Quality of Work Life (QWL) Index not only gives accurate data about employee wellbeing, but by highlighting the development needs of each team, this smart survey tool also shows companies what improvements they need to undertake in different parts of the organisation.

There is no need to wait until productivity or engagement has fallen before adopting this approach. Measuring employees’ quality of working life and taking management actions to improve this will boost employee engagement and productivity in all circumstances.

Proof that the Quality of Work Life (QWL) Index delivers results

Some of the companies that have adopted the QWL approach have been surprised by the results. For example, the management board of one large company was sceptical about claims that the QWL approach would increase its profits by a certain amount. Nevertheless, the board gave the go-ahead to measure the quality of working life in 30 of its business units but to only make improvements, based on the resulting data, in 10 business units. Annual profits subsequently rose by 4,700 Euros for every employee in these 10 business units. In the other 20 units, profits remained at the same level, prompting the management board to adopt a new HR strategy for the whole company.

The innovations introduced as part of this new strategy covered the working environment, business processes and technology. But most of all they focused on improving the quality of the company’s leadership at all levels. Pointing out that in every organisation there are very good leaders, as well as very poor ones, Professor Kesti argues that poor team leaders are responsible for more losses than good leaders are for generating profits. ‘But when you continue to measure the quality of working life, you can reduce this harmful distribution and improve your productivity,’ he says.

Taking the company’s pulse

The key to measuring employee wellbeing effectively is to do it regularly. The QWL survey, which consists of just 15 questions, can collect anonymous feedback from employees as often as necessary, while an online toolkit will analyse this feedback and recommend management actions that will improve the situation. Organisations will be able to spot and address quality of work life issues before they turn into serious problems that undermine the company’s growth strategy.